Over the past two years, the Dubai Financial Services Authority (DFSA) has completed a record number of inspections to ensure that audit quality within the Dubai International Financial Center (DIFC) remains rigorous and reflective of global best practices.
In its latest Audit Monitoring Report, the DFSA reveals that it has completed 33 inspections, registered 66 audit principles and 17 auditors to provide audit services to DFSA-regulated entities. Moreover, it recorded its highest number of authorizations, licensing over 100 new firms.
Inspection activity surges
During 2022-23, the DFSA conducted a total of 33 inspections across 17 registered auditors, a 14 percent increase in inspection activity from 2020-21.
Registered auditors spent 177,276 hours providing audit services to DFSA regulated entities, up 16 percent from 2020-21. In its report, the authority reveals that audit principals, on average, are spending around 6.26 percent of total engagement hours. That is a notable increase from an average of 4.76 percent in 2020-21.
The DFSA also reveals that audit fees have significantly increased by 72 percent from 2020-21. The report attributes this increase to the rise in the overall population of the DFSA-regulated entities, complexities associated with these audits, and general fee rate increases.
Commenting on the report, Ian Johnston, chief executive of the DFSA, said: “Robust audit oversight is crucial for trust in our financial systems. This report outlines both the challenges we face and the proactive measures we are taking to ensure audit quality meets global standards. It is critical that the audit profession responds promptly and meaningfully to improve audit quality.”
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Decline in audit quality
The DFSA’s Audit Monitoring Report reveals a significant decline in audit quality. “This trend, which is consistent with global observations, necessitates immediate action,” added Johnston. To combat this quality decline, the authority has issued regulatory concerns letters, private warning letters, cease and desist orders, and mitigation plans.
During 2022 and 2023, 58 DFSA-regulated entities changed their registered auditors. The most frequent reason they gave for these changes was lower audit fees.
The authority cites this as a challenge as lower audit fees may impact the resourcing and quality of audit engagements. “The principle requiring audit engagements to be conducted with professional competence and due care is paramount to maintaining and improving audit quality,” the report added.
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